Where in the World would the South's economy be without Foreign Direct Investment?
By Michael C. Randle
This country has had a tough 10 years. Some have called it America's lost decade beginning with the tragedy of 9/11. As far as the economy goes, except for a brief period between 2004 and 2005, the last 10 years have been difficult. Even in the respite of 2004 and 2005, this magazine wrote that the "economy was choppy" in that there wasn't ever, in our opinion, a total recovery from the recession of 2001-2003.
By the time most experts claimed that the worst was over from that recession, the financial services industry, which, at the time accounted for almost 20 percent of U.S. GDP, showed the first signs of a meltdown as early as 2005. It went hand-in-hand that the first indications of a real estate crisis surfaced the same year in Florida. Those meltdowns continue today -- more than six years later.
Yes, it has been a long row to hoe the last few years. While things are much better as evidenced by the data from the 2011 SB&D 100 (go to www.sb-d.com), which revealed that calendar year 2010 was the South's second best economic development year since 1993 based on the total number of large job-generating projects, the economy remains wobbly. If anything, it is similar to 2004 and 2005. Yep, it's choppy in that some are doing well and others are still clinging to life running their businesses payroll to payroll and workers living paycheck to paycheck. Of course, those are the folks who still have their businesses after The Great Recession and those that still have a job.
That being the case, just where in the world would the South's economy be without foreign direct investment over the last 10 years? In short, the South would be out $756 billion in purchases of land, buildings and equipment since 2001 by foreign-owned firms according to the U.S. Bureau of Economic Analysis. That doesn't even count wages, tax generation and other revenues from foreign companies investing in the South's overall economy. And since that figure could be 10 times total investment over a 10-year period, we can easily make the argument that FDI has injected several trillion dollars into the South's economy since 9/11/01. That's not chump change folks.
The American South is uncommonly impacted by foreign direct investment when compared to other U.S. regions. Foreign companies far and away choose the South when setting up shop in the world's largest economy, which remains the United States. Of total investments made in this country by foreign-owned companies since 2001, the South's take has averaged 43 percent of the U.S. annual total, making it clear that foreign firms prefer the South over all U.S. regions by a large margin. Regardless, some still hold the belief that foreign investment in the U.S. is the result of a weak domestic economy.
In a Los Angeles Times article that appeared in the Sunday business section on July 9, 1989, Jock O'Connell wrote, "With foreign acquisitions of U.S. businesses and real estate as common these days as politicians defending the flag, America's existing open-door policy toward foreign investment is coming under increasingly critical scrutiny. As recent polls indicate, upwards of 80 percent of the American public want foreign investment in this country more closely regulated."
O'Connell went on to write, "In the short term, we have remarkably little choice in the matter. After a decade of consuming more than we produced, importing more than we exported, and spending more than we saved, the U.S. has become "hooked" on foreign money to finance the federal budget deficit and to provide investment capital for American industry." Sound familiar 22 years later? Remember, the article was written in 1989.
The article said much more about FDI in the U.S. (FDIUS). "Any steps which would hinder this infusion of foreign funds, without at the same time providing the U.S. economy with the financial equivalent of methadone, would be monumentally unwise." O'Connell went on to write, "On the one side of this rather simpleminded dispute are the acolytes of free trade who zealously believe that barriers to foreign investment's free flow violate natural law. On the other side are those who seem absolutely terrified that foreigners will soon be able to foreclose on the national mortgage and toss us all out on the street."
So, even back in 1989, some realized, like O'Connell, that foreign direct investment, whether Americans like it or not, is essential to our growing economy. And in 1989, the fear that companies like China -- one country among many others that we are greatly indebted to -- could suddenly "toss us all out on the street" existed then and continues to exist today.
I remember a few years ago when the fight for the Air Force's next generation refueling tanker project was at its zenith and tempers flared. Things got ugly. Those that supported Boeing winning the project went as far as saying that the 1,500 to 2,000 jobs that would be created by the deal didn't need to go to "foreigners" or "foreign workers."
Of course, they were referring to Boeing's competition in the project, which was then the European aerospace consortium EADS. The fact that U.S.-based Northrop Grumman was a partner with EADS in the deal didn't matter to the anti-foreign crusaders. EADS is linked to France-based Airbus, the largest manufacturer of aircraft in the world, a fact that didn't sit right with many on the far right, or as described in O'Connell's 1989 Los Angeles Times article as "crypto-racist xenophobes."
Those who supported the Northrop Grumman/EADS team defended the attacks by accurately claiming that the 2,000 new jobs that might be generated in Mobile, Ala. would not go to "foreigners." It was a silly argument. Fact is, foreign-owned subsidiaries in the South directly employ about 700,000 "Southerners" in the manufacturing sector alone and that figure would have increased if EADS had won the tanker project instead of Boeing. There will be some jobs generated in the South from Boeing winning the tanker project, yet, the vast majority of the jobs will be created in Washington State and Kansas.
Those illogical and misguided beliefs still exist today regarding foreign direct investment in the U.S., but not so much here in the American South where FDI is widely accepted for the simple fact that so many Southerners get their paychecks from foreign-owned companies. Again, though, the sentiment remains that foreign nations are taking advantage of a weak U.S. economy and dollar by investing in this country.
It should be noted that the truth is exactly the opposite. Foreign-owned corporations such as Toyota (this magazine's cover photo), Samsung, Mercedes-Benz, BMW, Shintech, Lenovo and Nissan, among thousands of others, are investing billions in America and the South for the simple reason that the U.S. economy is their No. 1 or No. 2 market in their global business expansion strategies. In other words, foreign companies are counting on a significant U.S. economic recovery or they wouldn't be doing what they are doing right now.
The United States doubles as the largest foreign direct investor in the world and also the largest recipient of foreign direct investment in the world. Since 2002, the dollar has depreciated against most all leading currencies. That depreciation has many people concerned that a cheap dollar leads to a fire sale of U.S. firms and real estate. Since the attacks of September 11, 2011, Congress has shown a higher level of concern for foreign direct investment in industry sectors that are of vital national interests, such as defense related companies.
Yet, there has been little research done on the relationship between a depreciated dollar and any impact it has on foreign purchases of U.S. firms or investments made in new projects in this country. We know that a depreciated dollar can force some foreign manufacturers of large durable goods, such as automobiles, to set up shop in the U.S. However, more than a cheap dollar, those projects are sited in the U.S. to offset shipping costs that are directly linked to the importation of large durable goods. That is evident by foreign automakers that call the Southern Automotive Corridor home, such as those from Germany, Korea and Japan (go to www.SouthernAutoCorridor.com for more information).
While the information is limited on the topic of increased foreign direct investment in the U.S. during a falling dollar, it is clear that FDI occurs with more frequency in the U.S. when the rates of economic growth between economies is on an upward trend as opposed to monetary exchange rates. Short-term movements in the exchange rate of the dollar don't seem to have that much effect. Yet, while little research has been done, it is widely accepted that long-run rates of return apparently do have an effect on foreign direct investment.
In fact, one of SB&D's media properties, www.SouthernAutoCorridor.com, predicted months ago that Volvo would soon consider a new assembly plant in the U.S. as a result of the long-term low rate of the dollar. We went as far as predicting that a site in Huntsville, Ala. would be first on Volvo's list for that prospective plant, if indeed it ever happens. Volvo has a decades-long history of flirting with the Southern Auto Corridor for an OEM plant with nothing to show.
But this particular Volvo site search may bring fruit for the South. Volvo, which assembles cars in Sweden, Belgium and China, is now owned by China-based Zhejiang Geely. And as if on cue, Automotive News published an article on September 13 with a headline that read, "Volvo Cars may build North American plant, Jacoby says." Jacoby is Volvo CEO Stefan Jacoby, the former U.S. head of Volkswagen who decided on Chattanooga for that German automaker's first U.S. plant since a poorly run VW venture closed in Pennsylvania in the 1980s. Jacoby's second choice for the VW plant? It was Huntsville.
In the Automotive News article, originated by Bloomberg, Jacoby was quoted as saying, "One weakness of Volvo cars is the exposure to the U.S. dollar, so we are investigating increasing our sourcing in North America" (to balance currency movements). Jacoby made the comment at the Frankfurt auto show. So, it is clear to Jacoby at least, that long-run low dollar rates do have an effect on his company's investment plans in the U.S. If Volvo were to invest in an assembly plant in this country, it would be by far the most visible Chinese investment in the U.S. to date.
The facts on foreign direct investment in the U.S.
Foreign direct investment in the US (FDIUS) in calendar year 2010 totaled $194.3 billion and in 2009 the total was $152.1 billion, which was down by more than half compared to the $319.7 billion invested in calendar year 2008. The $319.7 billion invested in 2008 was the second highest total ever, slightly less than the $321.3 billion invested in 2000. The recession of 2001-2003 saw FDIUS totals drop dramatically to a low of $63.8 billion in 2003. The total rose in 2004 but it wasn't until 2006 that foreign-owned corporations came back to the U.S. in droves. That year was the start of a significant FDI run that ended in 2009.
Chart No. 1
Foreign Direct Investment in the U.S. 2000-2010
Source: U.S. Bureau of Economic Analysis
While a phobia remains about foreign direct investment -- and that certainly centers on unions in this country since almost all foreign-owned operations are not organized -- there is no question that FDI represents a significant part of the U.S. economy as a whole. That part is even more evident in the South, the largest beneficiary of foreign investment of any other U.S. region (see Chart No. 2).
Over the last 10 years, majority-owned U.S. affiliates of foreign corporations have employed about 6 million workers. Currently, FDI supports 2 million manufacturing jobs in the U.S., or about 18 percent of the 11.5 manufacturing jobs in the U.S. today. It should be noted that the figure represented not much more than one percent of total manufacturing jobs in this country just 40 years ago, when from 1960-1969 a mere $40 billion was invested in the U.S. by foreign-owned firms. In fact, foreign direct investment didn't even generate a blip on the screen for all practical purposes in the U.S. as late as 1970. But exactly 30 years later it topped the $300 billion mark for the first time in 2000, which means in just one month that year foreign direct investment rivaled that of the entire decade of the 1960s. Even as late as 1994 the total barely reached $50 billion.
Chart No. 2
Foreign Direct Investment in the U.S. by Region in 2007
(Value of property, plants and equipment*)
||$541 Billion (43 percent)
||$286 Billion (22 percent)
||$262 Billion (20 percent)
||$198 Billion (15 percent)
Source: U.S. Census Bureau. *Rounded to the nearest billion.
One of the most revealing studies done on foreign direct investment in the U.S. was released this summer. According to the study conducted by the U.S. Department of Commerce, jobs at majority-owned U.S. affiliates of foreign-owned companies earn 30 percent higher wages than non-FDI supported jobs. In 2008 (latest figures available), foreign-owned firms compensated employees on average by over $72,000 per year. U.S.-owned firms that year averaged about $54,000 in compensation per employee on an annual basis.
That same study released in June of this year by the U.S. Department of Commerce showed that the 2 million manufacturing jobs supported by foreign direct investment (FDI) were also more resilient in that they were less affected by sector-wide job losses than job losses announced by domestic manufacturers. Furthermore, from 1998 to 2008, total manufacturing employment fell 24 percent in the U.S., while FDI-supported manufacturing jobs declined by only 11 percent in this country.
Chart No. 3
Foreign Direct Investment by leading countries in the U.S. -- 2008-2009*
|2. United Kingdom
U.S. Bureau of Economic Analysis. *Rounded to the nearest billion.
Foreign direct investment in the American South
No foreign-owned industry sector stands out more in the South than foreign automakers. There are 11 major foreign-owned automotive assembly plants in the Southern Automotive Corridor. Those are operated by Toyota (three plants; Georgetown, Ky.; San Antonio, Tex.; Tupelo, Miss.), Nissan (two plants; Smyrna, Tenn. and Canton, Miss.), BMW (Greer, S.C.), Mercedes-Benz (Vance, Ala.), Honda (Lincoln, Ala.), Hyundai (Montgomery, Ala.), Kia (West Point, Ga.) and Volkswagen (Chattanooga, Tenn.).
Those 11 foreign-owned automotive assembly plants in the Southern Auto Corridor mirror the U.S. Department of Commerce's study that showed foreign jobs are more resilient that domestic ones. For example, in the last 10 years, domestic automakers have closed 9 major assembly plants in the South and one -- GM's Shreveport, La. plant -- is slated for closure next year. Ten years ago there were 20 domestic assembly plants operating in the Southern Auto Corridor. Next year, that total will be reduced to 10.
On the other hand, as mentioned, there are now 11 major car and light truck assembly plants operated by foreign automakers in the South. Since the first one -- Nissan in 1983 -- opened in the South, not a single foreign assembly plant has closed and none are organized by a union. It should be mentioned that there are 10 more foreign-owned OEM plants outside of the South in the U.S.
Of the 80,000 jobs currently housed at foreign-owned assembly plants in the U.S., more than half are in the Southern Auto Corridor. Furthermore, of the $44 billion invested by foreign-owned automakers in their U.S. plants, we estimate that $29 billion has been invested in the South. The investment has been a sound one since the first foreign auto plant opened in Ohio in 1982. Currently, foreign automakers produce almost as many cars in the United States as domestic automakers produce in this country.
There are those who will argue that more important than the OEMs -- engine plants and truck plants are also operated by foreign automakers throughout the region -- are the thousands of parts suppliers that have been lured to the Southern Automotive Corridor as a result of the foreign automakers that make the South their primary home.
As of June 2011, foreign automakers employed approximately 45,000 workers at their original equipment manufacturing plants in the Southern Automotive Corridor. That figure does not include mid-sized and heavy truck assembly plants, like Volvo in Virginia, but it does include engine and other drivetrain facilities located in the South operated by a variety of foreign automakers.
In comparison, at its peak in 2004, several years prior to the Detroit 3's upheaval that occurred during The Great Recession, motor vehicle parts supplier operations directly employed approximately 265,000 workers in the Southern Automotive Corridor. Indirect employment totaled another 716,000 workers in the region at its peak in 2004, meaning the automotive industry in the South accounted for over 1,000,000 jobs directly and indirectly seven years ago, with about 25 percent coming from the supplier base.
Today, direct employment from parts suppliers in the South is approximately 200,000, or down about 65,000 from its peak in 2004. But the total is increasing by the day. For the first time since we have been monitoring the automotive industry in the South, every foreign automaker in the region is currently undergoing an expansion of its assembly and drive train plants. Add the fact that Volkswagen is just getting its plant up and running in Chattanooga and Toyota is days away from opening its new plant in Blue Springs, Miss. and that computes into a faster-growing supply chain over the course of the next several years in the Southern Auto Corridor.
Chart No. 4
Foreign-owned OEM operations in the Southern Auto Corridor
||San Antonio, Tex.
||Blue Springs, Miss.
||West Point, Ga.
Source: SouthernAutoCorridor.com. *Indicates engine plant. Note: Some employment figures include recent expansion announcements. Note: Some engine or drive train plants are included in assembly plant employment totals.
While it is apparent that job-generation has been weak as we emerge from The Great Recession, the downturn didn't seem to slow down FDI. During the previous recession of 2001-2003, foreign direct investment totaled a mere $149 billion, a significant drop from the one-year total of $321 billion in 2000. Yet, during The Great Recession of 2008-2010, foreign direct investment totaled $667 billion, a sum that topped total FDI from 2002-2006. Again, foreign-owned firms wouldn't make those multi-billion dollar investments unless they firmly believed that a significant recovery is in the cards for the U.S. economy.
By far the two most active industry sectors in foreign direct investment in the U.S. are manufacturing and finance and insurance. Together, those sectors account for more foreign investment in this country than all of the other sectors combined. In 2008, at the height of the recession, manufacturing alone accounted for $91 billion in foreign direct investment. The bulk of that came from two manufacturing sectors; transportation equipment and chemicals. That was true again in 2009 when only $29.2 billion was invested by foreign firms in manufacturing in the U.S. That year, $23.5 billion of the $29.2 billion came from automotive and chemicals.
Chart No. 5
Foreign direct investment in the U.S. by industry sector 2008-2009
|2. Finance & Insurance*
|3. Other Industries
|4. Wholesale Trade
|5. Depository Institutions
|7. Retail Trade
|9. Real Estate
Source: U.S. Bureau of Economic Analysis. *Rounded to the nearest billion.
The FDI effect
Much has been written about the millions of U.S. jobs that have been shipped offshore over the last 15 years or so. Rarely though has that subject given the full scope of the situation that centers on the fact that foreign-owned companies have created millions of jobs here in the U.S. during that same period. In fact, as written, more than 6 million people, or about 5 percent of the American private-sector workforce, are employed by companies headquartered overseas, according to the U.S. Department of Commerce. Naturally, most of those companies are headquartered in Europe and Asia.
And, according to the Organization for International Investment, about one-third of those 6 million jobs are in manufacturing, which also was revealed earlier in this article. While foreign-based companies originally set up shop in the U.S. to cater to the domestic consumer, an interesting thing has evolved. Today, foreign firms export nearly $250 billion worth of goods that are made right here in the U.S. That figure represents approximately 20 percent of the total value of goods exported by the nation as a whole, which was right at $1.28 trillion in 2010.
The book titled "The Selling of the American Economy: How Foreign Companies are Remaking the American Dream," explores the impact of foreign investment in the U.S. and its effect on American workers, communities and politics. The book was written by Micheline Maynard, a reporter for The New York Times.
In an article published by The Times in 2009 written by Maynard, she wrote "If these (foreign) jobs did not exist, the nation's unemployment rate would be above 13 percent" (the rate was about 9 percent when the article was written). She also went on to write, "When foreign companies open a factory or buy a business in a region they also stimulate local commerce and create a demand for more homes, shops, schools and restaurants. They contribute money to schools, parks and towns, and lure consultants and technicians who then provide more jobs. This ripple effect explains why governors, mayors and economic development officials are so eager for foreign investors." In Maynard's article, Indiana Gov. Mitch Daniels says, "Without foreign investment, we'd be a Dust Bowl."
As written earlier, the American South is the region of choice for foreign direct investment in the United States. While the automotive sector may garner most of the headlines, FDI is present in large part in many industry sectors throughout every state in the South.
So, where in the world would the South's economy be without foreign direct investment?
The latest, great foreign direct investment success story in the South can be found in central and east Alabama and west Georgia. In 2005 Hyundai opened its first and only U.S. assembly plant in Montgomery, Ala. That was followed by sister company Kia opening its first U.S. plant in nearby West Point, Ga. The strategy of building the two plants less than 100 miles apart has worked remarkably well for the South Korean companies that share a headquarters in Seoul.
The two Korean automakers have leveraged cost containment by sharing Korea-based parts suppliers that have located in the region surrounding the plants and between the two facilities. Engines and transmissions for both Kia and Hyundai vehicles assembled at the plants are built in Montgomery and West Point respectively.
While Nissan and Toyota have been making vehicles in the Southern Automotive Corridor for more than two decades, you would be hard pressed to find a better supply chain than what Kia and Hyundai have formed in east Alabama and west Georgia in just the last six years. The fact that both automakers share their supplier base reduces their overall costs dramatically. Add to the fact that Hyundai and Kia are setting sales records year after year and you have one of the most successful foreign direct investment stories in the South's history. Currently Kia houses about 3,000 workers at its plant in West Point, Ga. and Hyundai houses about the same in Montgomery. Together the two automakers are nearing the 1,000,000 vehicle sales mark in the U.S.
In addition to the two assembly plants, the supplier base in east Alabama and west Georgia has literally transformed economically the former textiles region. The revitalization of the region by the Korean automakers has touched every aspect of its economy. The more than $2 billion investment made by Hyundai and Kia will ultimately create as many as 30,000 direct jobs in region. Many of those jobs are being created in ghost towns left for dead by the textiles and apparel industries.
While Kia and Hyundai may be the latest FDI success story in the South, no Southern state has benefited more from a single foreign company than Tennessee has with its long-term relationship with Japanese automaker Nissan. Nissan opened the South's first foreign automotive assembly plant in Smyrna, Tenn. in 1983.
The Japanese automaker has invested billions over the years at its two primary facilities in Tennessee; its 9.4 million-square-foot assembly plant in Smyrna and its massive drive train plant in Decherd, Tenn. In July, the plant in Decherd received the news that it will also build engines for the LEAF model. The latest large investment for Nissan in Tennessee, a $1.6 billion retooling of its Smyrna assembly plant to produce the all-electric LEAF as well as the lithium-ion batteries that power it, means that Nissan will continue to be one of Tennessee's largest employers for many more years after it celebrates its 30th year in the state in 2012.
Tennessee is also Nissan's home in the Americas region. Three years ago Nissan Motor Company relocated its North American headquarters from California to suburban Nashville. The new headquarters operation is only the second one for the Southern Automotive Corridor, but we predict it won't be the last. Nissan's $100-million-plus, 450,000-square-foot American headquarters facility is located in Williamson County, Tenn., part of the Nashville metro region.
While some will argue that Nissan has done more for Tennessee than any other foreign company in the South, don't tell that to the folks in Kentucky. In 1986, Toyota opened its facility in rural Georgetown, Ky. The plant is the largest manufacturing facility outside of Japan for Toyota. In addition to building a variety of vehicles, the facility also produces two types of engines and other power train parts.
Furthermore, the Japanese automaker operates its Toyota Motor Engineering & Manufacturing North America (TEMA) headquarters in Erlanger, Ky. TEMA is the result of a merger between Toyota Motor Manufacturing North America and Toyota Technical Center, USA. The facility opened in 1996 and oversees all Toyota manufacturing concerns in North America. From this location came decisions to build additional assembly plants in the Southern Automotive Corridor in San Antonio, Tex. and Tupelo, Miss.
Kentucky Cabinet for Economic Development Secretary Larry Hayes had this to say about Toyota's huge investments in Kentucky. "Toyota is single handedly Kentucky's biggest FDI success story and arguably one of the most significant FDI projects in the country of all time. The company's manufacturing plant in Georgetown, Ky. and its North American headquarters and parts center in Northern Kentucky alone would be an economic development success story for the ages, but the significance of Toyota's impact doesn't end there. It transformed our automotive industry landscape, opening the door for hundreds of automotive suppliers, especially from Japan and Europe, to locate here as well. Kentucky now ranks third in auto industry-related employment as a percent to total state employment among the top motor vehicle producing states in the U.S," Hayes said.
There's no question that investments made by Toyota in Kentucky and Nissan in Tennessee have positively transformed both state economies over the last 25 years. But in the last 15 years, no state in the Southern Automotive Corridor has seen its economy transformed more so by foreign automakers than Alabama's economy.
Since 1997, when Mercedes-Benz opened its first U.S. assembly plant in Vance, Ala., the state of Alabama has landed three other foreign-owned OEMs; Honda in Lincoln, Ala., Hyundai in Montgomery and Toyota's engine plant in Huntsville. No U.S. state has ever landed four different foreign automakers from three different countries. And if Volvo's Stefan Jacoby has his way -- SB&D learned several months ago -- the Alabama total could rise to five foreign-owned OEMs from four different countries.
The economic effect of the Japanese, Germans and Koreans in Alabama has been nothing short of remarkable. In fact, you could change the title of this article to "Where in the world would Alabama's economy be without foreign direct investment?" Let's just say that you will not find a better poster child for foreign direct investment anywhere in the U.S. than Alabama over the last 15 years.
New Alabama Development Office Director Greg Canfield had this to say about foreign direct investment in Alabama: "We plan to continue our campaign to bring additional companies here," Canfield said. "Because of the success of well-known investors such as ThyssenKrupp, Honda, Mercedes, Hyundai, and Toyota, this task has been made easier." Canfield also said, "Our international neighbors are also some of the state's best corporate citizens. They have helped with a variety of projects from tornado cleanup to job education programs for our students. We value them greatly."
In 2010, 68 out of 351 new and expanding investments in Alabama were from international companies. These companies represented more than half of all of the state's capital investment last year alone ($1,236,917,460 out of $2,175,179,750).
Other foreign automakers are also making their mark in South Carolina (BMW), Mississippi (Toyota and Nissan), Texas (Toyota) and West Virginia (Toyota). In fact, you would be hard pressed to find a better corporate citizen anywhere than BMW in South Carolina. The German automaker has invested almost $6 billion in its Upstate South Carolina facilities since 1993 and currently the plant houses over 5,000 workers.
It doesn't hurt that vehicles made at BMW's South Carolina plant -- the X3, X5 and X6 -- are incredibly popular here in the U.S. The University of South Carolina estimated that for every full-time job at BMW's Spartanburg County, S.C. plant, there are 1.87 other direct jobs created, for a total of about 10,000 full-time jobs tied directly to BMW's plant in South Carolina. In addition, according to the University of South Carolina, BMW has paid in state and local taxes, duties and fees well over $2 billion to state and local governments since 1993. Of course, wages paid by the luxury German automaker since 1993 are far beyond that figure.
There is another benefit that most don't realize about foreign automakers making the Southern Automotive Corridor their destination of choice in North America. The majority of assembly plants operated by foreign automakers are (or were when built) located in rural areas of the region. In addition, the vast majority of parts suppliers are operating in rural locations, begging the question, "Where in the world would the rural South's economy be without foreign direct investment?" We will answer that one: The rural South's unemployment rate, which currently hovers around 20 percent, might be 30 percent without the jobs that have been created by foreign automakers.
FDI is prominent throughout the South
Yes, investments made by big foreign automobile manufacturers like Toyota, Honda, Nissan, Hyundai, Kia, BMW and Mercedes-Benz have received the greatest amount of attention over the last two decades in the American South. But there are also hundreds of thousands of Southerners employed by foreign-owned operations throughout the region that are not automotive related and many more are also employed by foreign-owned automotive related companies that are not automakers.
BP (U.K.), Royal Dutch Shell (Netherlands), Royal Ahold N.V. (Netherlands), Nestle (Switzerland), Siemens (Germany), Sony (Japan), Aegon (Netherlands), AXA Group (France), Delhaize Group (Belgium), Deutsche Telekom (Germany), Manulife (Canada), Samsung (South Korea), Novartis (Switzerland), UBS (Switzerland), BASF (Germany), Roche (Switzerland), Credit Suisse (Switzerland), EADS (Netherlands), Bridgestone (Japan), Canon (Japan), ThyssenKrupp (Germany), Bayer (Germany), BAE Systems (U.K.) and Michelin (France) are just some of the foreign-owned corporations with massive operations in the South.
The investments made by the aforementioned companies don't just provide high paying jobs during hard times; they provide much needed tax revenue for states, counties and municipalities. In 2007, German steelmaker ThyssenKrupp announced one of the South's largest economic development projects ever. The $5 billion steel plant complex that was built in north Mobile County, Ala. currently houses about 2,000 workers and 2,700 are expected to work there eventually. The deal didn't come cheap for Alabama. State and local governments ponied up about $1 billion in incentives to land ThyssenKrupp, most of which are tax breaks for the German company.
Yet, the massive investment is beginning to pay off. In September, the Mobile County School System was surprised to learn that ThyssenKrupp will be billed $19 million in property taxes for the school system this year. That figure is twice as much as what was budgeted. Furthermore, ThyssenKrupp has already spent about $900 million in payroll and other expenditures since it officially opened its facility last year. If payroll and other expenditures don't increase as they are expected to do over the course of 10 years, Alabama's $1 billion investment will grow ten-fold in just one decade in wages alone.
Again, FDI comes in so many more forms than representing the backbone of the Southern Automotive Corridor. Florida, which has no automotive industry to speak of, leads the Southeast in FDI. "Foreign direct investment affords a great contribution to the Florida economy," said Gray Swoope, President and CEO of Enterprise Florida, the state-level economic development agency for The Sunshine State. "More than 2,500 foreign companies operate in-state and they employ 245,000 Floridians. More importantly, according to the Washington, D.C.-based Business Roundtable, foreign investment jobs in Florida pay 31 percent higher wages than the state's average. Florida is the nation's sixth largest recipient of FDI and first in the Southeast in terms of FDI employment," says Swoope.
Swoope goes on to say, "The worldwide economic downturn has not waned the interest of foreign companies in investing in Florida. During the past two years, Enterprise Florida has referred 297 new FDI leads to local communities in-state. Among the businesses that chose to establish in Florida during this period are many marquee companies like Embraer, which became the first foreign airframes manufacturer to assemble airframes in the United States; SAFT, from France; and Research in Motion (RIM), from Canada."
Lastly, foreign investment is helping Florida emerge from the worst real estate crisis it has ever faced according to Swoope. "Foreign investors also are playing an important role in the recovery of Florida's real estate sector. It is estimated that more than 30 percent of residential real estate purchases in the state are being made by foreign nationals."
Florida may have the second-largest total of workers employed by foreign multinational companies in the South, but as with virtually every economic development statistic that exists, Texas tops all states in the region. In 2010, according to the Organization for International Investment, U.S. subsidiaries of foreign companies employed 439,400 Texans, far and away the largest total in the South and the second-largest state total in the nation. In addition, according to the Bureau of Economic Analysis, Texas led the country with almost $120 billion in FDI assets in 2007, the latest data that we could find in that department.
Two huge contributors to Texas' insourcing of foreign-based jobs include France-based Alcatel-Lucent and Samsung, the Korean company that is the world's second-largest chipmaker. Alcatel-Lucent is a leader in fixed, mobile and converged broadband networking, as well as IP and optics technologies. The company is entrenched in the Dallas/Fort Worth metro community of Plano. There it provides jobs to over 2,400 Texans and the site is also home to the Alcatel-Lucent University -- Plano team and the Plano & Innovation complex. The Plano location is one of three sites in the world that develops and delivers training on Alcatel-Lucent products and solutions for customers and employees.
About a year ago, Samsung Electronics made a historic announcement regarding its facilities in Austin. The company is undergoing a $3.6 billion expansion of its chip plant in Austin, which is the largest investment in Austin history, surpassing the $3.5 billion the company spent at the same Northeast Austin site in 2007. The latest expansion will not produce memory chips as the rest of Samsung's operations do in Austin. This new facility will produce "systems on a chip" that are used in smart phones, digital television sets and other new products. Altogether, Samsung has invested almost $10 billion in Austin since it chose Texas' Capital City for its first plant in 1996.
Of course, the leader in Texas for foreign direct investment is Greater Houston. Houston is a global center for the energy industry and virtually every major energy producer and thousands of support industries have significant operations in the nation's fourth-largest city.
As written earlier, the rural South might be sitting at 25 to 30 percent unemployment if not for the foreign automotive industry that is such a large job generator in the region. Yet, small towns in the South are not exlusively relegated to the automotive industry for new jobs created by foreign-owned firms. Here is an example: Since 1988, FujiFilm has operated its North American Manufacturing and Research and Development Headquarters in Greenwood, S.C. The 500 acre complex features four state-of-the-art manufacturing facilities, houses about 900 workers and Fuji has invested almost $2 billion over the years in the 2.5-million-square-foot facility.
Here are more examples of FDI in other Southern states that we have not mentioned in this article:
West Virginia is host to businesses that originally hailed from such diverse places as Australia, Canada, Germany, Italy and Switzerland. International investors in the state include: ABB, Bayer, Bombardier, Hino Motors, NGK Spark Plugs USA, Klöckner Pentaplast, Kureha PGA, Saint Gobain, Toyota Motor Manufacturing West Virginia, Wheeling-Nisshin, and other companies from Europe, Japan and other regions of the world.
In Virginia, more than 700 internationally-owned businesses from 45 countries operate in the Commonwealth. The firms employ over 160,000 people and in the past 10 years international companies have announced more than 34,000 new jobs and $5.6 billion in investment in Virginia. Some of the FDI successes in Virginia include projects by Rolls-Royce, Canon Virginia, STIHL, Fareva, ABB, Volvo Trucks and Swedwood.
Mississippi has seen its share of FDI success of late. Wilh. Schulz GmbH is completing construction of its Tunica County, Miss., advanced pipe manufacturing plant. The German company selected Tunica for its first North American manufacturing facility in 2010. Also in 2010, Siemens (German) and Fiskars (Finnish) located distribution facilities in North Mississippi. Nissan recently completed a $118 million expansion to its Canton, Miss. assembly plant and of course Toyota is on the verge of opening its Blue Springs, Miss. plant.
But there might not be a better example of successful FDI in Mississippi than Severstal's (Russian) steel plant in Columbus, Miss. The facility, which houses hundreds of workers, recently completed an expansion of its mini-mill that doubles its crude steel capacity to 3.4 million tons. The plant's opening in 2005 marked the first new U.S. steel mill in the U.S. in over a decade.
For Louisiana, gross property, plant and equipment values of foreign firms totaled $31.2 billion, or second-most among the 12-state Southeast region (Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and West Virginia). According to the Bureau of Economic Analysis, only Florida has a higher value of foreign-owned assets among those states. North Carolina is third, followed closely by Kentucky, which is fourth. Of course, Texas is not one of the states on the list.
From January 2010 through August 2011, 19 foreign-owned companies announced new and expanded projects in Arkansas. The companies created a total of 2,158 jobs with a total investment of $407 million. Some of the international firms that call Arkansas home include Nordex (Germany), Welspun Tubular (India), Saint Jean Industries (France), Mitsubishi Power Systems (Japan) and Firestone Building Products (Japan). Approximately 30,000 Arkansans are employed by foreign-owned firms.
In Oklahoma, U.S. subsidiaries of foreign firms insource 36,800 jobs, an increase of 8.6 percent over six years. Oklahoma is home to more than 140 foreign companies including facilities operated by Umicore, Siemens, Hitachi, Acciona, Sigma Alimentos, Michelin and Spirit Aerosystems. During the recession, more than 5,000 new jobs were created by foreign firms in Oklahoma.
Texas, as it does with just about everything, leads the South in foreign direct investment. In 2010, foreign projects into Texas increased 33 percent, with 227 foreign deals locating in the state. Texas is second in the nation for the number of jobs at U.S. subsidiaries of global companies, behind only California. Foreign firms insource about 440,000 jobs in Texas according to the Organization for International Investment. More than 150,000 of those jobs, or about 35 percent, are in manufacturing. In addition to the aforementioned Samsung, Toyota and Alcatel-Lucent, other foreign firms with large operations in Texas include BASF (Germany), Novaritis (Switzerland) and Siemens (Germany).
In manufacturing alone, there are over 1,000 foreign-owned facilities in Georgia that house approximately 100,000 workers. Total employment in the Peach State from foreign-owned firms is right at 200,000, which ranks in the top 15 nationally.
North Carolina ranks in the top 15 nationally in terms of the value of foreign direct investment in the state. The vast majority of foreign investment in North Carolina comes from Europe. Bayer, Bosch, Daimler, Delhaize, GlaxoSmithKline, Novartis, Novo Nordisk, Volvo and Lenovo all thrive in North Carolina.
As mentioned earlier in this piece, the media along with lobbyist, unions and other politically-motivated organizations in this country, work hard to make us all aware of the jobs being outsourced to other countries around the world by U.S.-based companies. Rarely, if ever, is the insourcing of jobs by foreign-owned corporations into this country mentioned in the same breath and that is too bad. Because when the subject of "Made in the South" comes up these days, check out who is making it. More and more products are being "Made in the South" by foreign-owned companies and considering what this country has been through economically over the last 10 years, we should welcome that with open arms.
Finally, this summer, when we asked our Southern state-level economic development officials to provide us with data for this story, we obviously revealed the title, which asks the question, "Where in the world would the South's economy be without foreign direct investment?" So as we conclude this story, I'd like to give you just a few of their answers without naming names.
* "Mike, don't even make me think about that."
* "We'd be at 15 percent unemployment, that's where we would be."
* "Half of the investment we have generated in the last year would not exist."
* "The Governor and our politicians in Washington would all lose their next elections."
* "In the tank, that's where."